As a business grows, a group structure — a parent company holding shares in one or more subsidiaries — often becomes the natural next step. Done well, it delivers genuine tax efficiency: losses can offset profits across the group, assets can be moved between companies without triggering tax, and VAT can be simplified.
A group structure (holding company + trading subs) unlocks several tax benefits: group relief for losses, no SDLT on intra-group property transfers, no CGT on intra-group asset transfers, and the holding company can sell subsidiaries CGT-free under the Substantial Shareholding Exemption. Set up cost is typically £1,500-£3,000 plus annual filings.
But getting it wrong is expensive. The Autumn 2025 Budget tightened transfer pricing rules effective from 1 January 2026, and HMRC continues to focus on whether group structures have genuine commercial substance. This 2026/27 guide explains the main reliefs, the main risks, and how to think about restructuring tax-efficiently.
⚠️ 2026 Transfer Pricing Changes — Already in Effect
From accounting periods beginning on or after 1 January 2026, UK transfer pricing reforms have widened the scope of related persons and introduced a more prescriptive 'acting together' test. Groups approaching 250 employees or £50m turnover should document inter-company arrangements now.
What Is a Group for UK Tax Purposes?
Different reliefs use different definitions — an important nuance:
📋 Three Definitions of 'Group'
- 75% group (corporation tax group relief): the parent must hold at least 75% of the ordinary share capital, and be entitled to at least 75% of distributable profits and assets on a winding-up
- 75% capital gains group: broader — uses a 'principal company' test that allows for sub-groups and indirect holdings
- VAT group: broader still — eligible bodies can register together as a single taxable person provided they are under common control
Group Relief for Losses
The headline benefit. Trading losses, excess capital allowances, and certain other amounts can be surrendered between 75% group companies, offsetting profits within the same accounting period.
🧮 Worked Example — Group Loss Relief
- Parent Co. P generates £400,000 taxable profits
- Subsidiary Co. S makes a £150,000 trading loss
- Co. S surrenders the loss to Co. P
- Co. P's taxable profit drops to £250,000
- Corporation tax saving: £37,500 (at 25% main rate with marginal relief)
Group relief is claimed in each company's tax return, with a formal surrender by the loss-making company and acceptance by the recipient. There are detailed rules for 'pre-entry losses' (losses arising before joining the group) to prevent loss-buying.
⚠️ Non-Coterminous Year Ends
Group relief is only available for overlapping accounting periods. If Co. P has a December year end and Co. S has a March year end, the loss can only be surrendered on a time-apportioned basis for the overlapping period. Groups with mixed year ends should consider aligning them — or model the impact carefully.
Intra-Group Asset Transfers
Transfers of capital assets between members of a 75% capital gains group are deemed to take place at no gain / no loss — no immediate CGT or corporation tax on chargeable gains arises. The asset retains its original base cost in the hands of the new owner.
This is invaluable for restructuring: moving property between subsidiaries, consolidating IP into a single holding company, or hiving off a trade in preparation for sale.
⚠️ The Six-Year Degrouping Charge
If the receiving company leaves the group within six years still owning the asset, a degrouping charge arises — taxing the deferred gain as if the asset had been sold at market value when first transferred. This is a critical planning point for any restructuring ahead of a sale: the degrouping charge can unwind years of tax-free intra-group transfers at the worst possible moment. The Substantial Shareholdings Exemption (SSE) can sometimes neutralise the degrouping charge — but only with careful forward planning.
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VAT Groups
Two or more eligible bodies under common control can register as a single VAT group. Once registered:
- Supplies between group members are disregarded for VAT — improving cash flow and simplifying intercompany invoicing
- The group submits a single VAT return
- All members are jointly and severally liable for the group's VAT debts
📈 When VAT Grouping Is Most Valuable
- Partly exempt groups: where some members make exempt supplies — grouping can improve the partial exemption recovery position
- Property-holding structures: where a property company charges rent to an operating company — grouping eliminates the VAT charge (and the irrecoverable VAT for partly exempt businesses)
- High-volume intercompany invoicing: eliminates cash flow timing differences on intercompany VAT
⚠️ Joint and Several Liability
Every VAT group member is jointly and severally liable for the entire group's VAT debts. If one group member becomes financially distressed, HMRC can recover the full VAT liability from any other group member. Assess this downside before applying — particularly if the group includes companies with different financial profiles.
Inter-Company Dividends and Financing
Dividends between UK companies are typically exempt from corporation tax under the dividend exemption. This makes a group structure efficient for moving cash from operating subsidiaries to a holding company for investment, acquisition, or distribution to shareholders.
Inter-company loans can be tax-efficient — interest is generally deductible in the borrower and taxable in the lender — but the Corporate Interest Restriction limits net interest deductions to 30% of UK tax EBITDA (with a £2m de minimis threshold). For larger groups this can be a binding constraint.
Holding Company Strategies
A UK holding company can centralise group governance, hold valuable IP, manage treasury, and — critically — sell subsidiary shares under the Substantial Shareholdings Exemption (SSE).
🎖 Substantial Shareholdings Exemption (SSE)
- SSE can fully exempt the gain on a disposal of qualifying trading subsidiary shares
- Conditions: the disposing company must hold at least 10% of the ordinary share capital for a continuous period of 12 months in the last 6 years
- Both the disposing company and the subsidiary must broadly be trading companies or members of trading groups
- SSE also typically exempts any loss on the same disposal — so the exemption is all or nothing
- Investment holding companies with no trading activity may not qualify — the trading status test applies to both ends
What Changed in 2026: Transfer Pricing Reforms
UK transfer pricing rules apply to large companies — broadly, those with more than 250 employees, or turnover above £50m and assets above £43m. From accounting periods beginning on or after 1 January 2026:
| Change | Detail |
|---|---|
| Widened 'related persons' definition | Now includes certain 'common management' scenarios that were previously outside scope |
| More prescriptive 'acting together' test | Harder to argue that uncoordinated transactions fall outside the rules |
| UK-to-UK transactions largely excluded | Most UK-to-UK intercompany arrangements are removed from transfer pricing — but exceptions apply |
| PE and Diverted Profits Tax tightened | Permanent Establishment and DPT rules strengthened in parallel |
👥 SME Exemption — Still Applies
Smaller groups (SME exemption — broadly, less than 250 employees and turnover below £50m or assets below £43m) remain outside most transfer pricing rules. However, SMEs should still document inter-company arrangements at arm's length — particularly as they approach the large company thresholds — to avoid challenge if status changes suddenly due to growth or acquisition.
Anti-Avoidance to Be Aware Of
❌ Four Key Anti-Avoidance Rules
- Targeted Anti-Avoidance Rules (TAARs): throughout the loss relief and group relief code — arrangements designed to transfer losses artificially are challenged
- General Anti-Abuse Rule (GAAR): applies to abusive arrangements that exploit the tax code in unintended ways — commercial substance is the best defence
- Diverted Profits Tax (31%): where profits are artificially diverted offshore through arrangements lacking genuine commercial substance
- Hybrid mismatch rules: preventing double deductions or deduction-without-inclusion in cross-border structures using hybrid instruments or entities
✅ Key Takeaways — Group Structures 2026/27
- Group relief is one of the most valuable corporation tax planning tools — but losses must be matched by accounting period and documentation properly completed
- Intra-group asset transfers at no gain/no loss support major restructuring — but watch the six-year degrouping charge, especially ahead of a sale
- VAT groups simplify intercompany invoicing but create joint and several liability — assess the trade-off carefully for each group member
- Holding company structures can deliver real benefit (SSE on share sales, central treasury) but need genuine commercial substance
- If your group is approaching 250 employees or £50m turnover, transfer pricing rules apply. Document inter-company pricing now — not when HMRC asks
- Keep restructuring plans well-documented with commercial rationale — this is the best defence against GAAR and TAAR anti-avoidance challenges
Frequently Asked Questions
What is group relief for corporation tax?
Group relief allows trading losses, excess capital allowances and certain other amounts to be surrendered between 75% group companies, offsetting profits within the same accounting period. The parent must hold at least 75% of ordinary share capital and be entitled to at least 75% of distributable profits and assets on winding-up.
What are intra-group asset transfers?
Transfers of capital assets between members of a 75% capital gains group are deemed to take place at no gain/no loss — no CGT or corporation tax arises immediately. The asset retains its original base cost. However, a degrouping charge arises if the receiving company leaves the group within six years still owning the transferred asset.
What changed in UK transfer pricing rules from 2026?
From accounting periods beginning on or after 1 January 2026, UK transfer pricing reforms widened the categories of related persons to include certain common management scenarios, introduced a more prescriptive acting together test, and largely excluded UK-to-UK transactions from transfer pricing. The rules apply to large companies with more than 250 employees or turnover above £50m and assets above £43m.
📚 Related reading
- Offshore Accounting & Outsourcing Guide — As groups grow, bookkeeping and finance admin scale faster than tax complexity. Outsourcing offshore is the standard mid-market move.
- CGT on Shares, Crypto & Business Assets — Selling shares within group structures triggers different CGT treatment (SSE, BADR) — full breakdown.
Shamim works with growing UK and international groups on holding company strategy, group relief planning, intra-group restructuring, VAT groups and transfer pricing documentation. His an active Head of Tax — Europe role at a major digital infrastructure operator gives him direct, live experience of large-group tax management alongside his boutique advisory practice.
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